From Exuberant Youth to Sustainable Maturity - DTI Home

GAMES MARKET OVERVIEW
• Console manufacturer: Manufacturers heavily
subsidise the cost of the console hardware itself
but charge a license fee for each unit of software
sold. The console hardware is thus a loss leader
for selling games. As a result, manufacturers
spend very heavily every five years to promote
their new console platforms (e.g. Microsoft has an
estimated $500m budget to market the Xbox).
Consequently, manufacturers control access to
their console platforms very closely through
licensing developers and access to development
tools, approval of titles at concept and
manufacturing stage and control of the
manufacturing process.
The console manufacturers also have in-house
development and publishing arms which are able to
produce high production value games for their own
platforms as flagship titles as license fee payments
do not apply to them.
2.2 Global market size
The global leisure software industry has experienced
rapid growth over the last five years and is now
estimated to be worth c £13bn. Of this total, games
software represents the majority of the market,
approximately £10bn (the remainder is accounted for
by educational, children's, reference, utility and home
office software). The US is the largest leisure
software market in the world, accounting for £4.5bn
in 2000, followed by the European (£4.1bn) and
Japanese (£2.4bn) markets.
Exhibit 3: US, European and Japanese leisure
software market, 2000 (£bn)
12
10
8
6
4
2
0
Total US,
Europe and Japan
US Europe Japan UK
Source: Screen Digest – Interactive leisure software, market assessment and
forecasts to 2005
3 Source: Screen Digest - Interactive leisure software, market assessment and forecasts to 2005
4 Source: Spectrum games industry forecasts
5 Source: Spectrum games industry forecasts
PC
Console and handheld
10 Competitiveness analysis of the UK games software sector Main report
Worldwide, the console (as opposed to PC) games
software market accounts for 68% of all leisure
software sales. This varies regionally, console
software represents only 55% of the European
market but 94% in Japan. The console software
market total includes software sales for handheld
devices, which are estimated to represent 6-7% of
US and European market, but closer to 25% of sales
in Japan 3 . PC games software sales in Japan are
low because the PC is very closely associated with
the work environment, rather than a leisure device.
The console software market is predicted to grow by
15% CAGR (Compound Annual Growth Rate) 4 over
the next five years both in terms of volume and value
with the introduction of the new generation console
devices. In contrast, whilst the PC games market is
expected to continue to grow as strongly in volume
terms over the next five years, downward pressure
on retail prices is expected to significantly slow, if not
halt, growth in the overall value of this market with
only 6% CAGR 5 growth expected.
Exhibit 4: PC and Console games software global
market growth forecasts (£bn)
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14
12
10
8
6
4
2
0
Console PC Console PC Console PC Console PC Console PC Console PC Console PC Console PC
00
Japan
Europe
USA
01
02
03
Source: Spectrum games industry forecasts
The UK is the largest games software market in
Europe and the third largest in the world. Valued at
£0.93 billion in 2000, the UK represented 26% of the
total European games software market, and 8.7% of
the world market. This is compared to the US and
Japan markets which represented 36% and 20% of
the total market value respectively in 2000. This is
due primarily to the significantly higher penetration of
games consoles and larger populations in Japan and
the US.
04
05
06
07